“They made the charges so were fully liable for the payments and did (at some point during the year) have the $4000 to pay them off. Lucky for them the collectors caved. But that is why credit card companies have fees and high interest rates, because some people end up not paying the whole bill.”

Though the statement didn’t say anything about Christians, I thought it would be interesting if we explored the topic of Christians and credit card settlements. I’ve already shared my thoughts on Christians and bankruptcy, but a credit card settlement is different than a bankruptcy.

First, here’s a little financial foundation that will help us answer the question.

What is a Credit Card Settlement?

A credit card settlement is when a company agrees to take less than your total payment to settle your balance with the company.

For example, if you owed $15,000 to Craig’s Credit Company and Craig’s Credit Company agreed to take $10,000 to close the account, that would be a debt settlement.

As a note, you should always get any settlement offers in writing. If it is not in writing, there is not a legitimate offer.

Credit Card companies do not settle in situations where they expect the individual(s) can pay.

The only reasons why Craig’s Credit Company would offer a settlement is they are afraid that you might not give them anything (if you go bankrupt). They would rather have the $10,000 than nothing.

Credit Card companies do not settle unless they choose to.

Since the credit card is owed the money, the consumer does not have any rights. You cannot threaten to sue the credit card company because they want their money. However, the credit card company can sue you.

When a credit card settlement happens, the credit card company is at least minimally satisfied to have some form a payment – otherwise they would not accept it.

Credit card companies typically sell old accounts to debt collectors for less than you owe.

Craig’s Credit Card can sell your debt at any point. So, perhaps Craig’s CC company had trouble collecting my money, so they sell the $15,000 debt to Joe’s Credit Collecting Agency for $10,000. The credit card company takes the $10,000, clears their books, and (theoretically) never has another interaction with this customer’s account.*

As a result, it is entirely possible to settle the debt for $10,000 and Joe’s Credit Collecting Agency gets all their money. To pay the full $15,000, it would not go to the original lender either way.

* As a side note, it is important to know that many credit card companies actually also own the collection agencies they use, so it might not be a completely separate organization.

Should A Christian Negotiate A Credit Card Settlement?

If a Christian is able to repay a loan I believe she should. She should try and follow all the steps for getting out of credit card debt. Furthermore, I don’t agree with repayment strategies where you stop paying just so you will be offered a credit card settlement. This does not agree with the principle of honor in the Bible.

If, on the other hand, a Christian consumer cannot repay a loan according to the terms and conditions and the credit card company offers a settlement, I do not see anything biblically or morally wrong with a Christian accepting a credit card settlement.

It is not like the person is saying, “I’m only going to give you $10,000 and that is all you’ll get.” Instead, a credit card company has basically said, “Under these circumstances we would rather have the $10,000 than continue to pursue this matter.”

Furthermore, I think a Christian could even initiate the settlement by introducing their true financial situation. The only caveat, rule, or guidelines is that Christians must be completely honest and provide accurate information. If, with that information, the company wants to settle, then good for them. If, on the other hand, they do not, you must oblige to their conditions.

In the OT, it was common to accept a lesser, delayed, or no payment based on financial hardship.

“If you lend money to one of my people among you who is needy, do not be like a moneylender; charge him no interest. If you take your neighbor’s cloak as a pledge, return it to him by sunset, because his cloak is the only covering he has for his body. What else will he sleep in? When he cries out to me, I will hear, for I am compassionate. (Exodus 22:25-27 NIV)

Therefore, I do not believe it is a sin to accept an offer that a credit card company extends.

Comments

I’ve never understood the whole settlement thing. I was once paying an amount every month to a hospital for a medical bill. Same payment, every month, never missed. They called one day and said if I would pay 1/2 of the remaining balance that day, they would wipe out the rest. I told them I was fully prepared to continue my payments as I was doing and pay in full, and they agreed that would probably happen and they believed I would do so, but they still wanted to settle just to get it off of their books. So I put the half on a credit card and finished paying it off that way. What I paid in interest is far less than what I would have paid had I paid it in full. But I never did understand why they did that when they could see it would have been paid in full within the next 10 months or so.

@Scott
This is a perfect example where a creditor would rather just have the money and be done with it. The thing about settling a debt is that at the end both parties should get something they want. In your case, you couldn’t understand what they had to gain, but they certianly seemed happy to get the money.
FYI sometimes when institutions see an increase in credit allowance (or new credit purchases) they get nervous and decide they just want to get the payment. I wonder if that might be the case here. On the other hand, hospitals have been known to have poor accounting departments.

I don’t think its a sin either, I’d consider that favor from the Lord if I’d get a credit card settlement. Thankfully, I don’t need one!
.-= lencib: Falling into Favor´s last blog ..Instructions for being Blessed =-.

In my opinion, if you got yourself into debt, you should try to get yourself out of it. This is just an issue of responsibility. People shouldn’t be buying things that they cannot afford.

On the other hand, if a person gets into debt because of a hardship such as a medical emergency in which they get stuck with a large bill, then I would lean more to thinking that debt settlement would be okay. This is more of an extreme situation. If you’re trying hard to repay the debt, and the interest is just too difficult to handle, then it’s different from a situation of being in debt due to overspending on material things. In this case, it’s more of an issue of compassion in my opinion.
.-= Darren´s last blog ..Work Less, Live More By Bob Clyatt | Book Review =-.

@Darren
Glad to see your comment – I guess it is now allowing your comments again.
Most of the time by the time a person realizes they are this deep in debt there is not time for past regrets.
I would say that if someone is able to settle a debt then they got themselves out of it. If both parties agree on the terms and conditions then it is a legitimate way to get out of debt – in my opinion.

Craig,
You handled a sticky topic well. It is definitely wrong for anyone to devise a plan to get out of paying what they owe. But, in some circumstances, a negotiated settlement can be a win-win for all parties involved.
.-= Joe Plemon´s last blog ..Airstream Saga Continues: Jan and I Second Guess Our Decision =-.

@Joe
First, I did not intend for this to post today. My internet has been out for the last 12 hours and I was surprised to see that this posted – it was scheduled, but I intended to change it. I say that becuase I planned to email you a heads up that I was posting this.
Second, I think the win-win is the key. If you are doing anything to take advantage of the credit company they would not accept a settlement. But they do think it is in their best interest.

I think you hit the nail on the end when you said to be honest. I think if we have our integrity, are clear about our situation, and the creditors want to settle, then why not?

The hardest for me was when we were trying to negotiate settlements with the credit card companies, they just would not budge. Mainly because we paid on time and could keep on paying. We ended up taking a loan from my in laws and then went back to credit card companies asking them to waive the last bit of interest fees as we paid off everything in whole. Nope. Even though we were giving them thousands of dollars- they still would not waive the last 100 bucks or so of fees. Yet, if I was in bankruptcy, they would have no choice. It is a tough system for the desperate.
.-= Ted´s last blog ..On the road to a Doctorate…Library Access =-.

First, I agree that debts should be paid, and that those who render service that is accepted should also be paid. If I render service, I deserve to be paid; if one renders service to me, that person should be paid (assuming, of course, that the service rendered is what was bargained for and is acceptable).

The credit card companies, however, don’t play by fair rules, despite their assertions to the contrary. In most cases, the average Joe with several credit cards receives solicitation offers, checks, etc. at very, very low – or in some cases, zero – interest rates. Granted, that is for a limited period of time, and then perhaps the rate jumps to, say, 6.5%.

In need of money to make ends meet, Joe uses the balance checks to pay for groceries, mortgage, etc. As a result, Average Joe’s credit card balances get higher. Since Joe is only making minimum payments, the balances are not being reduced; they continue to escalate.

Now, I am not saying what Joe is doing is right or wrong. But, the bottom line is that Joe is making payments, even though Joe is not getting ahead, and if only minimum payments are made, it may take 20-30 years to pay everything off!

Here is where the banks go awry. Joe has trouble making a payment on time and is only 2 days late. What happens? First, Joe gets hit with a $39.00 late fee. Then, that nice interest rate of 6.5% suddenly jumps – without warning – to 18.9%. Joe still makes the minimum payment, but now more of that payment is going towards interest only, simply because Joe was 2 days late.

Now, it so happens, that all of Joe’s neighbors are in the same boat. In fact, a few of the people in Joe’s town lost their jobs and can no longer pay their credit card bills. So, the bank decides that JOE MUST PAY for those who don’t and raises Joe’s interest rate to 24.9%. That requires a mimum balance payment to increase, and now Joe can’t make that payment. So, Joe gets hit with another $39.00 late fee and the credit card company raises the interest rate again to a staggering 30.5%.

Because one of Joe’s creditors raised its rates for Joe, now all of the others do the same, for ostensibly, the same reasons.

The result: Joe cannot pay his creditors because they have all raised their interest rates for various reasons, inclusive that Joe must now subsidize the banks for those people who have completely defaulted.

IF the creditors would lower their rates and work with Joe, he just might be able to pay them off. At the very least, he would certainly try. But, at 30.5% on several accounts totaling more than $60,000, Joe is between a rock and hard place. And, Joe has a family of five to take care of.

Joe has choices, but debt settlement seemingly makes the most sense. Joe would love to pay the debts in full, as he agreed, but the interest rates and late charges have made it impossible.

The credit card companies are just as responsible for Joe, IMHO. As a result, negotation and settlement may be the best resolution for ALL parties when Average Joe finds he can no longer meet his obligations.

@Richard
You are correct when you indicate that this industry is out of control – no doubt about it. However, we must remember that everyone who has a relationship with a credit card signed up for the ride. They can’t give you a credit card unless you give them a signature. This is why some financail advisors suggest you completely avoid credit cards.
I think this is why credit card companies do settle debt so easily – they are already making a ton of money on all the interest they’ve charged.
But, I don’t think it would be fair to say they cc company is just as responsible as Joe – they didn’t make the original charges he did. Yes, if they charged too much interest and fees they share a responsiblity in the inability to pay.

I agree. I am by no means suggesting that Average Joe is not responsible for his/her actions. We all are. I think most that come to the realization that they will never be able to repay the debt without some sort of settlement, however, are good people, with good intentions. Of course, the cc companies didn’t force them to take the money, but they did, and because of the rules they are now being forced to repay more than what they should. Isn’t 30% outright usury? How is that just? (aside from legal, of course). Not asking you, just rhetorically.

Over the past 20 years or so, most of this country (US), including our government, has lived way, way beyond our means. We are all now paying the price of excess (a deadly sin, depending on the form). I see settlement as the CC’s “contribution” to bringing us back to the middle.

Thank God debtor prisons were abolished long ago, or we would really have a mess on our hands!

@Richard
Yes, 30% is insane. One of my goals through this blog is to help people get their financial house in order so that they don’t even have to pay a single penny in interest payments in the future. A lot of people think that is impossible, but it’s not.
Agreed about the debtor’s prison. That would be a scary reality for a lot of people today.
Twitter = @MH4Christians.

The late Larry Burkett said that even if you file bankruptcy and the law/courts say you no longer owe the money, Larry says that God says we still owe it and must repay. Christians must repay what they owe. I tend to both agree and disagree with this.